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If it is a highly probable forecast transaction, it is a cash flow hedge. But if it is a firm commitment to receive USD, it can be accounted for as a cash flow hedge or a fair value hedge.

Yup. You can do it on materiality grounds. Just make sure you document the decision for future reference if needed.

I don't really see a problem. Think of this from a net cash flow perspective. In the beginning you had a net cash inflow of FCU 1,900 which was equivalent to CU 190,000. And in the end you will have a cash outflow of FCU 2,000 which will be equivalent in CU to whatever rate is prevailing at that tim...

Hello, Any costs that are considered to be transaction costs are so because they are an integral part of the financial instrument's effective interest. As such -- and in my opinion -- any transaction costs in a currency other than the financial instrument's currency should be converted into the fina...

Hi Daniel, This is quite a vast topic that is not easy to explain in a few words. Hedge accounting is designed to address an accounting mismatch created by IFRS 9 rules. When companies hedge existing or futures exposures, they often use derivatives. Derivatives are always accounted for at FVTPL, but...

By the description it looks like this is a debt instrument. You may have voting rights, but you don't seem to be exposed to any variable returns. Why FVTPL though?

IAS 32 tells you what an equity instrument is, not how to deal with changes in a group structure. In a nutshell, if you reduce your stake in a sub without losing control: - you shall not recalculate goodwill - a profit or loss does not arise in the consolidated financial statements, and - the increa...

IFRS 10 (paragraph 23)

:) Hopefully the sub will really continue operating, otherwise that GW would be immediately impaired, hehehhe I think you are a bit confused about where the money goes to. Say that Company A buys Company B. Let's assume that Company B is a private company and held by one single shareholder (Mr Rich)...

The cash will go to the shareholder(s) of the acquired business, not to the business itself. Normally, there will be no equity adjustments in the accounts of the acquiree (just a change of ownership).

Very good question. IFRS 7 scopes out employer's rights and obligations arising from employee benefit plans (IFRS 7 o 3 (b)). It does not say anything about other employee benefits, so one could conclude that some of the benefits you are mentioning are financial liabilities under IAS 32 and would fa...

Hello, I think first you need to understand what Goodwill is. When a company acquires a business and is deemed to have control over that business, it will need to consolidate the financial statements of both companies. At the time of acquisition, you need to identify and recognise all the assets and...

Indeed it does, but this is a transaction between two entities under common control. I wonder how "commited" this facility is, and so I think you can make a case not to recognise this facility. Otherwise you need to apply paragraph 4.2.1 (d).

The credit facility is a loan commitment and it is explicitly excluded from IFRS 9 (see paragraph 2.1 (g)). You don't account for it, although IFRS 9's impairment requirements do apply.

So yes, you should account for the drawdowns as separate financial instruments.

Yes Marek, you are right. Changes in interest rate will have an impact on fixed instruments at amortised cost for fair value disclosure purposes.

I simply assumed that the question was asked in regard to sensitivity analysis disclosures.

"and thereby recalculate the difference between the amortised cost in the books at a given reporting date, and the revised amortised cost at that date. Is that right ?" No, if you only have fixed-rate instruments accounted for at amortised cost, your P&L/Equity does not get affected by...

Answering your questions: "would the fair value of the loan change due to changes in market interest rates, such that the profit/loss for the year or equity as at year end would be affected?" -- no, if the loan is at amortised cost and interest rate is fixed, there will be no impact on P&a...

The easiest way to go about this is to create a table in excel with the following information for each point in time:

A: Balance B/F; B: Cash flow; C: Effective interest (=A x EIR); D: Balance C/F (=A - B + C)

Then "goal seek" the EIR that will bring the last balance to nil.

As JRSB points out, it appears that your company is the borrower, not the investor. As such, SPPI is not relevant (SPPI only applies to the classification of financial assets). This seems to be a contingent settlement provision that meets the definition of a financial liability. Have a look at IAS 3...

So long you can write down some good arguments to justify the adjustment to the discount rate (think about credit risk, commercial margins, etc), you should be on the right track. PwC's "Achieving Hedge Accounting in Practice" is always a good reference. I don't think there is any example ...

No problem. The valuation of a swap between unrelated parties should have a nil value at inception. You mention that your counterparty is a start-up, so my guess is that the swap's positive fair value (using market inputs) in your favour at inception is probably due to the start-up's credit risk whi...

This sounds like a commodity swap agreement. My attempt to answer your questions: 1. This CFD appears to be a derivative contract and, if the contract is entered into by two unrelated parties, the fair value should be nil at inception. Otherwise, why would one of the parties be willing to enter into...

If the purchase is a firm commitment, you can either see it as a cash flow hedge or as a fair value hedge (IFRS 9 p6.5.4). If it is a highly probable forecast transaction, it is a cash flow hedge. However... I'm not sure if you can apply hedge accounting to this transaction. As I understand it, the ...

Thanks, JRSB. And yes, these clauses that often seem so simple and make a lot of sense from a business point of view, can be quite a headache to account for.

Warning: this is a difficult and judgemental topic. It is an embedded derivative and needs to be bifurcated because of the option feature (see IFRS 9 B4.3.8 (d)). I am assuming that the functional currency is the INR. If so, there is a floor on the sales price expressed in INR -- if the INR apprecia...

Depends on whether you are calculating free cash flow to the firm (FCFF) or free cash flow to equity (FCFE). If the former, you should not include cash flows relating to financial obligations (such as repayment of loan principal). If the latter, you do include it. Tax cash flows are operational cash...

You could use a transition matrix.

Yes, it should. Because what you are comparing is what you should get back with what you expect to get back. Note however that in level 3 it doesn't make much sense to talk about "exposure at default". In level 3 you are already in default, and what you do is apply the good old "incur...

Hi, The auditor/bank approach is correct. The EAD should be based on contractual cash flows. For simple instruments, this is basically the contractual cash flows discounted back to the reporting date. (EAD is a bit more tricky to determine if we are talking about unutilised committed credit faciliti...

I would not include them in the interest expense line, but rather in the finance expense line as they are not interest.